RBI governor may consider resigning after rift with govt

Indian Ministry of Finance Keeping a Close Watch on Crypto Sector Development

"If, as reported, government has invoked Section 7 of the RBI Act and issued unprecedented "directions" to the RBI, I am afraid there will be more bad news today", Chidambaram added.

Mumbai: The rupee pared losses against the United States dollar on Wednesday after the government said that it respects the Reserve Bank of India's autonomy.

In August, the government inducted RSS ideologue S. Gurumurthy and businessman Satish Kashinath Marathe on the RBI board, in a move that was widely seen aimed at influencing the central bank's decision-making. And the most contentious issue of this fight is the reference to Section 7 (1) of the Reserve Bank of India Act under which the government shot off at least three letters on different issues to the Central bank. For the goal, extensive consultations on several issues take place between the government and the RBI from time to time.

Sources, however, insisted that the government has not taken any action of issuing any specific direction and has only initiated consultations with the central bank on unresolved issues.

Senior government officials said the RBI's guidelines on NPAs were not only stringent but "too harsh", and could have serious ramifications on industries such as MSME and power. In his speech, he warned that undermining the central bank's independence could be "potentially catastrophic". Government has never made public the subject matter of those consultations.

"The statement is ambiguous and does not fully clarify the issues at hand", said A. Prasanna, chief economist at ICICI Securities Primary Dealership in Mumbai. While the Economic Affairs Secretary declined to comment on whether Section 7 had been invoked, the official statement also made no mention of it.

Indian Ministry of Finance Keeping a Close Watch on Crypto Sector Development

"The central government may from time to time give such directions to the bank as it may, after consultation with the governor of the Bank, consider necessary in the public interest", the law reads.

"Only the final decisions taken are communicated".

If the move was indeed true, it showed that the government was "desperate" and was hiding facts about the economy, he said adding the previous UPA government did not invoke Section 7 prior to liberalisation of the economy in 1991, the Asian financial crisis of 1997 or the period after the recession in 2008.

"While objectives of both the government and the RBI appear to be the same as far as the question of tackling NPA is concerned, there seems to be a large difference in their approaches, which is apparently creating a tussle between the two institutions", N.R. Bhanumurthy, professor at National Institute of Public Finance and Policy (NIPFP), told The Wire. What is the need to invoke the provision now?

On Tuesday, Arun Jaitley responded, and held the central bank responsible for mounting bad loans, and said the Reserve Bank looked the other way when banks lent indiscriminately during 2008-14 to keep the economy going.




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